by Calculated Risk on 11/30/2009 09:46:00 AM

From MarketWatch: CNov. Chicago PMI rises to 56.1%, a 15-month high

The business activity index rose to 56.1% in November from 54.2% in October. ... The employment index rose to 41.9% from 38.3% ...

Readings above 50% indicate expansion, and below 50% indicate contraction, so this suggests business activity is increasing, but employment is still declining.

This index is for both manufacturing and service activity in the Chicago region. In general the Chicago area is considered representative of the mix of manufacturing and non-manufacturing business activity in the nation.

The national ISM manufacturing index will be released tomorrow, and the ISM non-manufacturing index on Thursday.

by Calculated Risk on 11/30/2009 08:39:00 AM

From The Times: Investors face huge losses as Dubai abandons debt company

The Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company’s creditors could lose billions of dollars.

Today's comment, from Abdulrahman al-Saleh, the director general of Dubai’s Department of Finance, effectively confirms that country does not have enough money to repay Dubai World’s $60 billion of liabilities. ...

From the Financial Times: Dubai official confirms no guarantee

From MarketWatch: Dubai World debt not backed by government:official

by Calculated Risk on 11/29/2009 10:55:00 PM

From the WSJ: Worries Grow Over Gulf Rift

The central bank said it "stands behind" U.A.E. banks and would make available funds to local institutions, including local subsidiaries of foreign banks.

But the statement pointedly didn't mention Dubai, disappointing many market observers.

And from the NY Times: Crisis Puts Focus on Dubai’s Complex Relationship With Abu Dhabi

Despite the announcement by the emirates’ central bank on Sunday that it would make more money available to local and foreign banks in Dubai, analysts say such imprecise promises — the bank did not say how much, or that it would back all the debt of Dubai or Dubai World — may not be enough to placate investors.

Many have been left wondering, again, if the Emirate’s debts are worse than most of the world suspects. Analysts estimate Dubai’s total debt at around $80 billion, but some here say it could well be closer to $120 billion, or more.

But looking at the stock markets, investors don't seem to be worried ...

In Asia, the Hang Seng is up over 3%, and Nikkei is up over 2%.

In the U.S, the S&P futures are up about 6 points (Dow futures up 50). Some sources:

Bloomberg Futures.

CNBC Futures

Best to all.

by Calculated Risk on 11/29/2009 07:13:00 PM

For some reason The Times has been removed from news stands in Dubai ...

From The Times: Central Bank of the United Arab Emirates takes hard line as Dubai counts soaring cost

... The rulers of Abu Dhabi are expected to make a statement before the markets open on whether they will bail out Dubai and which businesses and projects will be rescued.
...
Senior analysts in the region expect that projects regarded as folly will not be backed but operations and investments with a strong business model will be.
...
Today will mark the first key test of whether Dubai will default on its estimated $88 billion debt pile, when interest payments of about $138 million on a $2 billion bond issue by Jebel Ali Free Zone Authority, a unit of Dubai World, become due.

I think many people consider most of Dubai "folly".

by Calculated Risk on 11/29/2009 03:30:00 PM

The week will start with questions about Dubai, and a Treasury announcement on Monday about a plan to put pressure on lenders to complete modifications.

Click on graph for larger image in new window.

This graph is from the most recent Making Home Affordable Program Report for October.

To put the numbers in perspective: as of the end of June (five months is up for those borrowers) there were 143,276 trial modifications, and a 50% conversion rate would be about 70,000 permanent modifications. Of course a 50% conversion rate would be considered dismal. So I'd expect the number of permanent modifications to be well in excess of 100,000 for those early trials, and if some later trial modifications were converted, perhaps many more. The data will probably be released the week of December 7th.

The big news later in the week will be the November employment report. In between will be the ISM reports (manufacturing and service), auto sales (on Tuesday), construction spending, other employment reports and more. An interesting week!

And a summary ...

Chicago Fed Activity Index

From the Chicago Fed: Index shows economic activity leveled off in October

The index’s three-month moving average, CFNAI-MA3, decreased to –0.91 in October from –0.67 in September, declining for the first time in 2009. October’s CFNAI-MA3 suggests that growth in national economic activity remained below its historical trend.

Click on table for larger image in new window.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed the index should move "significantly into positive territory a few months after the official NBER date of the trough" - and that hasn't happened yet.

Existing Home Sales increased Sharply in October

Here is the NAR report: Existing-Home Sales Record Another Big Gain, Inventories Continue to Shrink

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in Oct 2009 (6.10 million SAAR) were 10.1% higher than last month, and were 23% higher than Oct 2008 (4.94 million SAAR).

For graph on Not Seasonally Adjust (NSA) sales, inventory and months of supply, see: Existing Home Sales Graphs

New Home Sales increase in October

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 430 thousand. This is an increase from the revised rate of 405 thousand in September (revised from 402 thousand).

This graph shows New Home Sales vs. recessions for the last 45 years. New Home sales fell off a cliff, but are now 31% above the low in January. For inventory, NSA sales, and months of supply, see: New Home Sales in October

Case-Shiller House Prices increased in September

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 29.9% from the peak, and up about 0.4% in September.

The Composite 20 index is off 29.1% from the peak, and up 0.3% in September.

More on house prices: Case Shiller Home Price Graphs

Other Economic Stories ...

FDIC Q3 Banking Profile: 552 Problem Banks

First American CoreLogic Negative Equity Report for Q3

"Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of September, 2009. An additional 2.3 million mortgages were approaching negative equity, meaning they had less than five percent equity. Together negative equity and near negative equity mortgages account for nearly 28 percent of all residential properties with a mortgage nationwide."

From the American Trucking Association: ATA Truck Tonnage Index Dipped 0.2 Percent in October

From the U.S. Courts: Bankruptcy Filings Up 34 Percent over Last Fiscal Year

$430 Billion in CRE Losses?

Scott Reckard at the LA Times has an overview: Few mortgages have been permanently modified

Unofficial Problem Bank List Increases Significantly

Best wishes to all.

by Calculated Risk on 11/29/2009 01:33:00 PM

From the NRF: Black Friday Verdict: As Expected, Number of Shoppers Up, Average Spending Down

... a National Retail Federation survey conducted over the weekend confirms the expected: more people spent less. According to NRF’s Black Friday shopping survey, conducted by BIGresearch, 195 million shoppers visited stores and websites over Black Friday weekend, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. ...

“Shoppers proved this weekend that they were willing to open their wallets for a bargain, heading out to take advantage of great deals on less expensive items like toys, small appliances and winter clothes,” said Tracy Mullin, NRF President and CEO.
...
“During a more robust economy, people may be inclined to hit the “snooze” button on Black Friday, but high unemployment and a focus on price caused shoppers to visit stores early in anticipation of the best deals,” said Phil Rist, Executive Vice President, Strategic Initiatives, BIGresearch.

* NRF’s definition of “Black Friday weekend” includes Thursday, Friday, Saturday and projected spending for Sunday.

This is for "stores and websites" - not just brick and mortar.

by Calculated Risk on 11/29/2009 11:26:00 AM

Note: I'll have a Black Friday retail post in a few hours ...

From Bloomberg: U.A.E. Central Bank Stands Behind Lenders, Adds Funds

The United Arab Emirates’ central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.

And from the Financial Times: UAE central bank offers credit facility

“It’s a bit disappointing .... It’s obviously a welcome measure in itself but we want to see more from the central bank. We want to see that they will guarantee the capital position of any banks that have exposure and that they will ultimately be willing to buy out the debt,” one UAE analyst said on Sunday.
excerpted with permission

Apparently the hope is that a majority of the debt due on Dec 14th is held by banks in the UAE, and that by adding liquidity, the UAE Central Bank will make it easier for the bondholders to accept the deferral of payment. However this isn't just a liquidity crisis - this is a solvency crisis (the assets are almost certainly worth less than the liabilities) - and this does nothing to address the solvency issues.

by Calculated Risk on 11/29/2009 09:23:00 AM

From Alejandro Lazo at the LA Times: Falling rents aid homeowners in mortgage trouble

Southern California rents peaked at $1,501 in the third quarter of 2008 ... Since then, rents have fallen 4.9%, to an average of $1,427 in the third quarter of this year, according to a survey of larger apartment complexes by property research firm RealFacts. The drop came as the occupancy rate of the buildings ticked down 0.8% to 93.7%. The data don't include homes converted into rental units or smaller apartment buildings.
...
Job losses and competition from foreclosed homes have made concessions by large landlords common. Thomas Shelton, president of Western National Property Management in Irvine, said he was offering about a month of free rent for every 12-month lease signed.

Although falling rents and significant concessions are good news for renters, this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks.

And falling rents are already pushing down owners' equivalent rent (OER). Since OER is the largest component of CPI, this will apply downward pressure on CPI for some time. And lower rents will also put pressure on house prices, since renting is a competing product.

But renting is a relief to some:

Thomas DeLong walked away from the mortgage on his final home in September and began renting a house for about $1,400 a month, with utilities, in the high-desert area of Perris.

DeLong ... said renting was a relief after years of worry and a financial juggling act that came crashing down all around him.

by Calculated Risk on 11/28/2009 10:55:00 PM

From The Times: Abu Dhabi rides in to rescue Dubai from debt crisis

And from the Telegraph: Abu Dhabi will not race to Dubai's rescue

Actually both stories are pretty much the same. From The Times article:

An Abu Dhabi official said yesterday it would “pick and choose” how to assist its neighbour, a hint that the restructuring of Dubai’s debts may not be straightforward. “We will look at Dubai’s commitments and approach them on a case-by-case basis,” the official said. “It does not mean that Abu Dhabi will underwrite all their debts.”

Clearly Abu Dhabi will ride, but not race, to the rescue.

by Calculated Risk on 11/28/2009 06:52:00 PM

By request here is a graph of the number of banks on the unofficial problem bank list.

We started posting the Unofficial Problem Bank list in early August (credit: surferdude808). The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are not made public.

CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest. Some of this data is released with a lag (the FDIC announced the October enforcement actions yesterday).

Click on graph for larger image in new window.

This graph shows the number of banks on the unofficial list. The number has grown by almost 40% since early August.

The two red dots are the number of banks on the official problem bank list as announced in the FDIC quarterly banking profile for Q2 and Q3. The dots are lagged one month because of the delay in announcing formal actions.

The unofficial count is close, but is slightly lower than the official count - probably mostly due to timing issues.